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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (4324)	1/3/2004 4:50:30 PM
From: russwinter	Read Replies (3) \| Respond to of 110194

Once you read through the Greenspeak I think it's fairly clear that the concern has shifted to inflation, including that of the asset variety. He barely even used the term "deflation", used the term "inflation" numerous times. "Most prominent is the appropriate role of asset prices in policy. In addition to the narrower issue of product price stability, asset prices will remain high on the research agenda of central banks for years to come. As the ratios of gross liabilities and gross assets to GDP continue to rise, owing to expanding domestic and international financial intermediation, the visibility of asset prices relative to product prices will itself rise. There is little dispute that the prices of stocks, bonds, homes, real estate, and exchange rates affect GDP. But most central banks have chosen, at least to date, not to view asset prices as targets of policy, but as economic variables to be considered through the prism of the policy's ultimate objective." He spent the first half of the speech reminding the world and giving a history listen that once upon a time, that even he, Easy Al, was willing to raise rates and do the normal things CBs do. I think he's sending a message to the wild "moral hazard" types out there, don't count on easy money now. In fact I think he admits here that the deflation fight may have been overdone. "For example, policy A might be judged as best advancing the policymakers' objectives, conditional on a particular model of the economy, but might also be seen as having relatively severe adverse consequences if the true structure of the economy turns out to be other than the one assumed. On the other hand, policy B might be somewhat less effective in advancing the policy objectives under the assumed baseline model but might be relatively benign in the event that the structure of the economy turns out to differ from the baseline. A year ago, these considerations inclined Federal Reserve policymakers toward an easier stance of policy aimed at limiting the risk of deflation even though baseline forecasts from most conventional models at that time did not project deflation; that is, we chose a policy that, in a world of perfect certainty, would have been judged to be too loose." He must have used a variation of the term, "uncertainty", "difficult to predict", or "unexpected outcomes" a dozen times.: "making monetary policy is an especially humbling activity. In hindsight, the paths of inflation, real output, stock prices and exchange rates may have seemed preordained, but no such insight existed as we experienced it at the time. In fact, uncertainty characterized virtually every meeting, and, as the transcripts show, our ability to anticipate was limited. From time to time the FOMC made decisions, some to move and some not to move, that we came to regret."